Do I need a wealth manager or financial adviser?
Let’s say you have reached a point in your life where things are looking good financially. All your years of hard work have paid off and it is now time to retire with a good pension pot and maybe a healthy ISA or two. You’ve been savvy with some pretty well-chosen investments over the years, even if you do say so yourself.
But now you have some important decisions to make and you need some advice. What does ‘advice’ even mean these days when you precede it with the word ‘financial’ or ‘wealth management’? There’s a bewildering plethora of choice facing you at this point and a veritable army of people queuing up to manage your money. It’s enough that you might want to just leave it in the bank and save yourself the confusion! But there is a lot of evidence to suggest that those who take advice tend to be better off in the long run, despite the additional cost.
So where do you start? Some big names instantly spring to mind and you might already on the mailing lists for some of them, but, what is the difference between an IFA and a wealth manager? Or indeed a private bank, a discretionary fund manager or a stockbroker? This is not an easy decision, particularly when the lines are blurred between these types of advisers and it’s sometimes difficult to distinguish between them.
The first thing to ask yourself is ’what exactly am I looking for’? Is it for someone to make a ‘holistic’ financial plan for you, or do you need a one-off piece of advice or perhaps you want a relationship with ongoing service? In all likelihood, it will boil down to a combination of two services; financial planning and investment management.
Financial planning involves developing a deep understanding of your needs and goals, and suggesting a plan to achieve them tax efficiently. Investment management, on the other hand, focuses on how the money is invested and managed. In combination these two services can be described as ‘wealth management’, firms will place a differing level of emphasis on each of these disciplines depending on their expertise and heritage.
IFA firms have typically developed from a financial planning background, offering a range of both transactional and ongoing services to suit a variety of needs. Like a financial GP, they will then bring in an investment professional to run a portfolio on an ongoing basis. This might be in the form of a managed or ‘multi-manager’ fund or through a discretionary fund manager.
Then there are private wealth management firms whose heritage lies in investment management rather than financial planning or tax advice. These firms have grown up running portfolios for wealthy individuals, with some coming from a stockbroking background. These firms will pride themselves on their investment expertise first and foremost, offering to make investment decisions actively on your behalf with financial planning often an ‘add-on’.
It is important to ask yourself what matters most to you; Independence, brand, service value, cost? Also, do you have a full understanding of the difference between cost and value? Cost (if it is transparent enough to work out) is absolute but value is intangible; something you feel rather than count.
One of the most important things when selecting an adviser will be personality and compatibility. You are to a greater or lesser extent entrusting your wealth to a person and/or a firm. You are likely to have ups and downs and mistakes will happen. It is, therefore, crucial that there is mutual trust and that you get on.
Ultimately, there is no right or wrong answer. Do your research and speak to friends and family to get their experiences, get to the bottom of the true cost and weigh up the value. But resist the temptation to play one firm or adviser off against another to beat them down on cost. Most advisers have thought long and hard about the price they charge for the services they offer. Hard haggling is not the best start to what should hopefully be a long and mutually-beneficial relationship.
James England, Senior Business Development Manager, Standard Life Wealth
First published in Money Observer 19th January 2016